January 26, 2012

Washington's local courts traditionally have turned away cases when the only ties to the city involved contact with a federal agency. A
ruling (PDF) this morning by the District of Columbia Court of Appeals offers a new exception to that rule when fraud is a central allegation.

The rule, known as the government contacts exception, was designed to keep Washington's courts from becoming national judicial forums, overloaded with cases that have no real connection to the city. But the three-judge panel ruled this morning that local courts do have jurisdiction to hear cases when a defendant is accused of committing fraud against a Washington-based federal agency that injured the plaintiff.

The underlying case involves a lawsuit filed by Brazilian producers of materials used to make steel against their American counterparts. The Brazilian companies accused the U.S. producers of giving fraudulent information to the U.S. International Trade Commission and manipulating the commission into imposing import duties on foreign producers in the 1990s.

The court didn’t decide the merits of the case, which is pending before the U.S. Court of Appeals for the D.C. Circuit. Under the D.C. Code, the D.C. Circuit can "certify" questions to the D.C. Court of Appeals if the federal appellate judges can't find precedent controlling an issue relating to an interpretation of D.C. law.

The Brazilian producers sued the U.S. producers in U.S. District Court for the District of Columbia. In March 2010, U.S. District Judge Rosemary Collyer dismissed the case, finding that, under the government contacts rule, the court lacked jurisdiction to hear the case. The Brazilian producers appealed, at which point the D.C. Circuit asked the local appellate court to weigh in on whether there existed a fraud exception to the government contacts rule.

The local appeals court heard oral arguments on Oct. 27. In today’s decision, Associate Judge John Fisher wrote that “nothing in our previous decisions holds or was intended to imply that individuals who enter the District of Columbia to fraudulently induce unwarranted government action against others, and succeed in doing so, should be able to avoid defending their actions in this jurisdiction.

“Such fraud does not warrant our protection,” he wrote.

Fisher was joined in the opinion by Chief Judge Eric Washington and Associate Judge Kathryn Oberly.

The ruling did come with caveats – Fisher wrote that for a case to fall under the fraud exception, plaintiffs need to allege that the federal agency in question actually relied on the fraudulent information. He wrote that plaintiffs in these cases should also expect to face a motion to dismiss, so they’ll need some evidence at the onset to back up their claims.

“Cases in which this fraud exception applies should be rare indeed,” Fisher wrote, noting that the guidelines for pleading fraud are not a “toothless standard.”

Lead counsel for the Brazilian producers, Bruce Cohen of Meredith Cohen Greenfogel & Skirnick in Philadelphia, said he was “gratified” by the decision. Cohen said that he’s retiring soon, so he considers the case his “swan song.”

Eckert Seamans Cherin & Mellott partner Dale Hershey argued on behalf of the U.S. producers. He could not immediately be reached for comment.